Public Bill Committee

[Hugh Bayley in the Chair]

Hugh Bayley: Order. The Committee is back in session, and I am back in the Chair. I am pleased to be here. Thank you for leaving a little of the Bill for me to preside over.

Clause 109  - Designation of statement

Amendment proposed (this day): 132, in clause109,page81, line35,at end insert—
‘( ) The strategic priorities and policy outcomes set out in subsection (2) must include proposals that ensure the use of biomass for the purpose of generating electricity meets the sustainability criteria in Article 54 of the Renewables Obligation Order, RO 2009, as amended or as directed by the Secretary of State.’.—(Sir Robert Smith.)

Question again proposed, That the amendment be made.

John Hayes: What a pleasure it is to have you back with us, Mr Bayley. We had an exciting and, I hope, productive time in your absence. As you noted, we have made considerable progress.
I am delighted that my hon. Friend the Member for West Aberdeenshire and Kincardine has brought this matter to the Committee’s attention by tabling an important amendment. We take very seriously the sustainability criteria for the use of biomass in generating electricity. We want to evaluate closely what Members on both sides have said about the consequences of policy and to make adjustments to deal with any unintended elements.
On the use of fuel, we held a consultation from 7 September to 30 November 2012 to look at sustainability and at improving the criteria for the renewables obligation. That included a proposal that, for generators of 1 MW of electrical capacity and above using solid biomass or biogas, support is linked to meeting the amended criteria. We are analysing the responses to the consultation, and we plan to announce the results around the end of March.
In addition, I have met representatives of the timber industry and, in particular, the wood panel industry, which the hon. Member for Hyndburn mentioned. I appreciate their fears that the additional demand that biomass might produce for timber could have an unhelpful effect, from their point of view, on price and availability. It is therefore important that we carefully watch any such impact, and work with the industry to gauge the effects of biomass and to take action, as necessary, to ensure that sources of timber are sustainable in terms of not only biodiversity, but their effect on local economies. As the hon. Gentleman made clear, the wood panel industry and the wood products sector are important parts of the UK economy.

Graham Jones: Will the Minister also include the recycled wood industry, the woodchip industry and any other wood industry? The furniture industry—he did not mention it, but I am sure he intended to—is also part of that timber economy, and it will be equally affected.

John Hayes: I take the hon. Gentleman’s point. The analysis my Department carried out showed the UK is a price taker in the global market for wood, with UK prices reflecting global prices generally. That is expected to continue in the future. Therefore, prices in the UK will probably be affected by interventions by other countries to a greater degree than interventions by the Government. Nevertheless, when I met representatives of the industry, I committed to a closer working relationship between my Department and the industry, better comparison of their data and ours, and a determination to monitor the effects of the extra demand for bioenergy on the price of wood.

Graham Jones: The Minister’s comments are helpful, and I hope my intervention is equally helpful. He is correct about the impact of global prices, but there is also pressure from within the EU single market, particularly in terms of timber coming from the east and the south-east, because it is expensive to transport timber. That is where the price pressures are coming from, in particular in the furniture industry—not necessarily global, hardwood timber, but softwood from Europe and Scandinavia. Will he be price-sensitive to those regions, as well as to the global price?

John Hayes: Yes. That is another good point. The hon. Gentleman is absolutely right to separate the softwood price from the price of hardwood timbers, typically grown further afield and used in a different segment of the sector. The softwood industry, which makes up a significant proportion of the wood panel market, as well as a range of other segments of the sector, could be affected by competing demands for softwood products.
Softwood is used in bioenergy for many reasons, but price and availability are two. The fear is that specific competition around the softwood element could be significant. In our further discussions, we want to establish greater clarity about other variables that might affect the price, about broader trends in the cost and price of wood and about the specific impact of bioenergy in the demand for biomass. I have made the point before but, to be frank, in the initial discussion there was some difference between the industry’s analysis and the Department’s. That was brought to my attention, not least by the all-party group, which asked to see me. At our meeting, I made it clear that we needed to establish a trusting relationship with the sector representatives so that we could compare our data and look at why, where and how they were different and how they might be reconciled.

Graham Jones: Where this may bear progress is in the contracts for difference. One of the CFD elements that I am keen to see is not only considering the financial equation between the various parties, but where the demand for trees is so great, in looking sideways—laterally—at the expected 50 million tonnes per annum required while we are only growing 14 million. I can be corrected on the figures, but there is a huge difference between where we are now in production and where we need to be. Does the Minister accept that is where we should be looking in the CFD? Not only financial relationships should be in the CFD, but the more renewable and responsible issues, because they would help to lower the price in the long term.

John Hayes: The hon. Gentleman again shows diligence in and understanding of these matters. I simply allow what he said to stand on the record, because it is an important contribution to the debate. By the way, I am pleased we have had the opportunity for this short debate, and I once again thank my hon. Friend the Member for West Aberdeenshire and Kincardine for stimulating it with the amendments.
I will simply make two further points and then perhaps conclude, with the indulgence of the Committee. First, we prioritise large-scale coal conversion over dedicated biomass. Our information is that dedicated biomass is more likely to use domestic supply, mainly because large-scale conversion projects require such volumes that they simply cannot be satisfied by domestic supply. That will have a direct effect on demand and supply.
Secondly, we decided to cap further the technology at 400 MW. Again, that is because we do not want biomass to become a dominant element, although we see it as an important part of the mix. All this desire to maintain a mixed economy requires the Government to use the right catalysts and to understand what they can do to incentivise and disincentivise certain activities, to maintain a healthy balance. That policy instrument was precisely for that purpose.
I said I would make two points but now I am moving to my third, so perhaps I can regard it as merely a suffix to the two. We have also put in place arrangements to predict and monitor the use of domestic wood. At the moment the arrangement is voluntary. We have asked the industry to provide information from their organisations about feed stock supply intentions over the next five years. I am happy to look at that more regularly. I am prepared to go further if the information suggests the need to do so, and I have made that very clear to the timber industry, particularly the wood panel industry. We will monitor that information closely and we expect to be able to publish our first response to it in the spring. The first tranche of information will give us the opportunity to provide a more detailed analysis of the circumstances that have been raised in this debate. However, we are absolutely determined not to produce an unintended consequence, in terms of either the supply route or the effects of the cost and price of supply. The Government are prepared to use the necessary levers to ensure that.
I happily give way to the hon. Gentleman one last time, and I will then move to my exciting conclusion.

Graham Jones: I thank the Minister for these exchanges; he has been very helpful. Would he go on the record and say whether he thinks that the capacity market auction and the contracts for difference would allow the Government to negotiate and implement a policy in which we would see greater production of wood—greater plantation of trees—that would meet future capacity and lower prices? In short, does he see tree production as an element in the capacity market auction and in contracts for difference, so that we can ensure a lower price for consumers through biomass, and perhaps lift that 400 MW of biomass production to a much higher figure, given that we will have increased production of wood?

John Hayes: I think the hon. Gentleman is skilfully—perhaps even a little playfully—trying to extract an on the record commitment from me on a very specific series of measures, which I am too wily to make. One can be wily and straightforward; that is not a paradox.
I am prepared to look at all those things. If we are to have a proper debate about the consequences of the demand for fuel and the need for timber, it is absolutely right that we consider it in the round. We would not be asking for evidence if we were not going to consider that evidence, having consulted and reported on our considerations. I am not prepared to make any commitments, but I am certainly prepared to retain an open mind about these matters. They are complex, and as with any policy, it is right to say that there can be unintended consequences of a range of kinds. Building policy is not about denying that; it is about being willing to respond appropriately when the consequences become clear, having measured them closely. That is precisely what I intend to do.
With that, I conclude my remarks on the basis that I believe that biomass is an important part of what we can do to build a more sustainable generating capacity. I accept that, as with each technology, there will be specific challenges associated with it, but the Government are ready for these challenges. We will move forward in a measured way. True courage is cool and calm. Those are the words of the great Tory social reformer, Lord Shaftesbury.
 Barry Gardiner (Brent North) (Lab) rose—

John Hayes: I give way to the hon. Member for Brent North. I will then have to move to another exciting peroration, but it will be a very brief one.

Hugh Bayley: Mr Gardiner, display true courage.

Barry Gardiner: True courage, indeed Mr Bayley. I will try to make my peroration short as well.

Hugh Bayley: As this is an intervention, that is a very good idea.

Barry Gardiner: Yes. Will the Minister simply address the question of how his Department will deal with the information provided in the searching report? I refer to the information that shows that whole-life trees are more polluting of the atmosphere until we get to the 100-year payback point. Given that we are trying to meet 2050 targets—some of us would like to meet 2030 targets as well—whole-life tree biomass might not be a suitable way of doing so, so how does the Minister propose to incorporate that in his thinking?

John Hayes: I had not expected to be obliged to speak about trees. I am rather interested in trees, for we plant trees for those born after us, and we plan energy for them, too.
In response to the hon. Gentleman, who is probably the only member of the Committee and one of the few Members of the House who believes that an intervention should have a peroration associated with it, I say this: a sustainably managed forest will produce whole trees that vary in size and quality, as he knows. It is common in the United Kingdom, when establishing new standards for trees, to plant in relatively high densities. Over time, a proportion of the young small trees will die due to competition, or will be thinned out to allow the best to thrive. The whole trees, particularly the earliest, can be beneficially used for energy generation, and that might be the only available use for them.
The whole trees might, therefore, play a part, but we must look at delivering the policy sustainably. If indeed that route provides a source of fuel that does not create the competitive pressures that understandably have been raised in the Committee, it might prove a useful element in satisfying need.
With that peroration, I draw my remarks to a close. I suggest to my hon. Friend the Member for West Aberdeenshire and Kincardine that he withdraw the amendment, but I thank him for raising the matter and I assure him that we take it seriously and will take further steps, as they become necessary, along the lines that I have outlined.

Robert Smith: I thank the Minister for his reply. In the context of the ongoing consultations, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 109 ordered to stand part of the Bill.

Clauses 110 to 112 ordered to stand part of the Bill.

Clause 113  - Procedural requirements

Michael Weir: I beg to move amendment 18, in clause113,page85,line14,after ‘Parliament’, insert
‘and the Scottish and Welsh Ministers’.

Hugh Bayley: With this it will be convenient to discuss amendment 19, in clause113,page85,line18,after ‘Parliament’, insert
‘and the agreement of the Scottish and Welsh Ministers’.

Michael Weir: In many ways, amendments 18 and 19 mirror earlier amendments of mine, the fate of which means that it would be a triumph of hope over expectation if they were agreed to. None the less, I move amendment 18.
The amendments relate to the process by which the strategy and policy statement prepared by Ofgem is approved. In essence, they seek to strengthen the role of the devolved Administrations in Scotland and Wales in the process. Northern Ireland is excluded as it is in a separate all-Ireland grid system.
I have indicated previously that I appreciate that progress has been made on some of the issues that I have had with Ofgem over many years, but concerns remain in some areas. Scotland’s grid system was separate from that of the rest of the UK until the new electricity trading arrangements—NETA—became the British electricity trading transmission arrangements—BETTA—and the Scottish system was incorporated in that new GB-wide system. There has since been a long, ongoing argument, particularly about transmission charges. The point, put simply, is that the issue had huge implications for Scotland and our wish to push ahead with the development of renewable energy, particularly in the highlands and islands, but that was hampered by the ideological bent of Ofgem, which was in thrall to the locational charging model. That might have been suitable for the days of huge-scale coal stations, for example, but it failed to meet the needs of a more diffuse renewable energy system.
Ofgem already delivers a highly regulated framework of capital investment and revenue recovery for individual developers on individual reinforcement and connection projects, and also must take note of the consumer interest. However, that approach can work against a more strategic approach to network development and reinforcement need, as can the focus on encouraging lowest-cost network development. The process can also be lengthy, leading to developer and supply chain uncertainty, which is damaging in the longer term. A good example of that is the current discussions on the need to deal with the transmission charging regime for offshore islands, which Ofgem sees in terms of capacity need. The real issue should be to consider the longer-term energy potential in subsea connections to the islands. We debated that previously.
The key to future energy policy is to ensure that we deliver the right framework, and that there is close co-operation between the various Governments who have an interest. I accept that the Bill would take us forward, by its recognition of the need for greater Government involvement in the process. The strategy and policy statement is a good way forward in ensuring that Government can set the policy objectives for Ofgem. Clearly, it will be subject to a periodic review. No one chose to debate the various clauses, and there is general agreement on that.
I believe that the measure will deliver better clarity on the roles of Government and the regulator, with Ofgem being given strategic direction, and work toward policy goals. The difficulty I have with the process, however, is that Scotland may have different policy goals from, say, England—and if my hon. Friend the Member for Ynys Môn is successful with new clause 7, so might Wales in future. The present process will mean that Ofgem will have to report to Parliament annually on how it works to achieve the policy goals of Government, but it will not have to do so in respect of the policy goals that may be set by the Scottish and Welsh Governments.
Ofgem is a Great Britain-wide regulator and, it seems to me, must appropriately reflect the specific needs of the individual parts of the network, as well as the overall network. There have been clear areas in the past of mismatches between the regulatory approach of Ofgem and Scottish Government policy and aims. One example was the Ofgem proposal in 2009 to target the costs of balancing system constraints at Scottish users, at the very time when we need to grow renewable energy.
The planning, regulatory and economic development responsibilities of Scottish Ministers, with respect to energy, are crucial. They need to be balanced through an appropriate responsibility for, and effective representation of, Scottish interests in the systems for influencing and developing market regulation, which have, as indicated in the examples given, often ignored specific Scottish interests. Ofgem should be accountable with respect to those policy aims, too.
In addition, therefore, to making a report to the Westminster Parliament Ofgem should make an annual report and be accountable to the Scottish and Welsh Governments for what it has done and proposes to do. That would provide an appropriate and effective representation of Scottish and Welsh interests in systems for influencing the development of market regulation.
As I have said, I move the amendment without much hope, but the issue is none the less important. I appreciate that there are difficulties about it, but Ofgem should reflect the interest of all the parties that have some duties for energy within these islands.

John Hayes: I thank the hon. Member for Angus for tabling the amendment, which, again not surprisingly, raises the issue of work with the devolved Administrations. We regard that as significant, of course. I recognise the importance of Ofgem’s work to Scottish and Welsh Members. However, as the hon. Gentleman knows, energy policy, including Ofgem’s performance, is a reserved matter. The Ofgem strategy and policy statement will apply across the whole of Great Britain, and we have included a procedural requirement for the draft statement to be laid before the UK Parliament before the Secretary of State may designate it.
Earlier in our proceedings—I am not sure whether you were in the Chair at that juncture, Mr Bayley—the hon. Gentleman raised the issue of the role of the devolved Administrations in electricity market reform. I made it very clear then that there would of course be collaborative work with those Administrations, as well as the extensive discussion that that kind of reform requires. That happened during the preparation of the Bill and applies to this aspect of the Bill as well. The changes that we seek, which will arise from and be stimulated by this legislation, will of course necessitate a whole-kingdom application, which will require discussions of that kind. In recognition of the interest in Scotland and Wales in the strategy and policy statement, the Scottish and Welsh Ministers are listed as statutory consultees and, of course, will have an opportunity to comment on the statement before it is circulated for wider consultation. That applies both to the first SPS and to any future revisions.
For that reason, the Government do not consider it necessary to require the strategy and policy statement to be laid before or agreed by Scottish and Welsh Ministers. As I described in our earlier debate, the use of the word “agreement” is, in such terms, assumptive, so requiring their agreement would, in effect, give Welsh and Scottish Ministers a veto power. I am sure that is not what the hon. Gentleman would want. Having said that he agrees with the general purposes of the Bill, he would be the last person to want to damage its chances of success, and there is no implication of that. However, requiring that the SPS be agreed by Scottish and Welsh Ministers would give them an unhappy and unhelpful veto power over the application of the SPS across Great Britain. That would not be in line with either common sense or the devolution settlements that we enjoy.
I therefore respectfully request that the hon. Gentleman withdraw his amendment.

Michael Weir: I understand what the Minister is saying and where he is coming from. Although I fully accept that DECC has had a lot of discussions with Scottish—and no doubt Welsh—Ministers on these matters, I still have a grave concern about the fact that, in the past, there have been specific conflicts with Ofgem, which were not resolvable. I do not think there is a case for a veto, but perhaps there is one for greater discussion.
Having said that, I am a realistic man and I feel that the Committee is probably not with me on this issue, so I will not press my amendment to a vote at this stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 113 ordered to stand part of the Bill.

Clauses 114 and 115 ordered to stand part of the Bill.

Clause 116  - Consequential provision

Tom Greatrex: I beg to move amendment 125, in clause116,page87,line39,at end insert—
‘(4) This section shall take effect on that day on which the first strategy and policy statement comes into effect.’.
It is good to have you back, Mr Bayley. You have missed some entertaining sittings of the Committee, but I am sure that we still have some to go. Amendment 125 is very limited in extent. I wish to raise a couple of brief points with the Minister. As Members will be aware, clause 116 repeals the existing guidance on social and environmental policies that Ofgem has regard to, effectively because that guidance will be replaced by the strategy and policy document to which the provisions of part 4 of the Bill relate.
There is, however, a possibility—indeed, I think it is probably a near certainty—that the first strategy and policy statement will not be published until 2015, yet the guidance on social and environmental policies to be repealed by clause 116 will be repealed immediately. Will the Minister give us clarification about that anticipated gap and what will fill it? Although it makes sense to codify existing guidance into a single policy document, there could be a lag between that happening and the first strategy and policy statement coming into effect, which could cause uncertainty. This minor, technical, amendment seeks to ensure merely that when the new strategy and policy document comes into effect it replaces the existing social and environmental policy so there is not a gap.

John Hayes: I thank the hon. Gentleman for raising this issue. The amendment is designed to improve the drafting of the consequential provisions and, in particular, to bring them into effect once an SPS is in place. The amendment is unnecessary because clause 125(2)(e) already provides that the social and environmental guidance will only be repealed by a commencement order on a date appointed by the Secretary of State. I think that is sufficient to deal with the matter that he raised. Our intention is that a commencement order repealing the social and environmental guidance would not be made until an SPS is in place.
Clause 125 also provides that clause 116 (2) and (3) will come into force two months after Royal Assent. This is appropriate for these provisions, which simply add references to the duty to further the SPS policy outcomes into the principal objective and general duties in the Gas and Electricity Acts. That is my understanding and it is confirmed by my own sight of the Bill, but I will look at that again because I want to be absolutely confident that the point that the hon. Gentleman has made does not have greater weight than it first appears to do. To that end, given that I will consider further the general issues he raised, I respectfully request that he withdraws the amendment.

Tom Greatrex: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 116 ordered to stand part of the Bill.

Clause 117 ordered to stand part of the Bill.

Schedule 14  - Consumer redress orders

Tom Greatrex: I beg to move amendment 126,in schedule 14, page178,line42, leave out subsection (4).

Hugh Bayley: With this it will be convenient to discuss the following:
Amendment 127,in schedule 14, page179,line7, after ‘turnover’, insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.
Amendment 128,in schedule 14, page179,line13, after ‘turnover’, insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.
Amendment 129,in schedule 14, page185,line20, leave out subsection (4).
Amendment 130,in schedule 14, page185,line29, at end insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.
Amendment 131, in schedule 14,page185,line35, at end insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.

Tom Greatrex: Amendments 126 and 129 have a similar impact on parts 1 and 2 of schedule 14. Part 1 relates to gas consumers and part 2 relates to electricity consumers. The consumer redress powers in the Bill are welcome but they do not go far enough to protect consumers who have been ripped off by energy companies. As the Bill stands the consumer redress powers will not apply to investigations currently undertaken by Ofgem. Those consumers who have been the subject of unsatisfactory practice by their energy suppliers could therefore miss out on compensation simply because of the time that the investigations take.
The Bill gives the energy regulator the power to order companies to compensate consumers who have been mistreated or misled about their energy deal, their tariffs and the arrangements under which they are put on those tariffs. Under the deal struck between the Government and the big energy companies, the powers will not cover any of Ofgem’s current eight investigations. As I am sure the Minister is aware, the regulator is currently investigating each of the big six energy companies for a range of different issues: an investigation into SSE, ScottishPower and npower on door-to-door selling started in September 2010; an investigation into EDF on handling of customer complaints started in December 2010; investigations into ScottishPower on discrepancies in its terms and conditions for customers and misleading online tariff information started in March and June 2011 respectively; an investigation into British Gas on blocking business customers from switching providers began in January 2012; and an investigation into E.ON on door-to-door selling commenced in April 2012.
A range of different issues are subject to investigations. I do not wish to second-guess their outcome, because they are investigations at this stage, but that list indicates the time it can take for investigations to be completed. Any investigation that begins today, tomorrow, next week, next month or until the Bill receives Royal Assent will not be bound by the consumer redress powers set out in schedule 14. That is unfair to customers who have been subject to unfair practice, particularly where the investigations have yet to be concluded. The sums involved could be significant; as Members will be aware, after EDF was found to have misled consumers last year, Ofgem imposed a nominal £1 fine and the company agreed to pay back £4.5 million to its customers.
Many consumers will be concerned that the schedule, while introducing consumer redress powers, will leave out the findings of significant investigations that I have just listed, if any of them report before the Bill receives Royal Assent. They will be concerned that they will not be awarded the redress set out in the Bill.
The Minister may well argue that I am suggesting retrospective legislation, but I do not agree. The amendment is not retrospective in the sense of punishing companies for something that was not against the rules at the time the contravention happened, but would simply force the companies that had broken the rules, which remain the same regardless of the amendment, to compensate consumers appropriately for the investigations that conclude within the time scale we are talking about. I hope that the Minister will join us in supporting consumers.
Amendments 127, 128, 130 and 131 seek to ensure that consumers are compensated fully when it has been found, after investigation, that they have not been treated fairly. The Bill will limit compensation to 10% of the turnover of an energy company. What would happen if the value of the loss suffered by consumers was greater than that? Should consumers not receive pound-for-pound compensation when they have been subject to mis-selling or have not been treated fairly? Why should a consumer lose money so as to protect the balance sheets of the company? Will the Minister clarify the rationale behind capping compensation at 10% of turnover?
I completely accept that the chances of the value of any compensation package exceeding 10% of the company’s turnover are relatively slim, but it is still a possibility. The Government must prepare for that. In the event that compensation exceeds 10%, there would have had to have been a significant number of cases of customers being ripped off—indeed on a grand scale—making the need for consumers to be fully compensated even greater.
An important point of principle is at stake. The Government have said a number of times that they want to be on the side of consumers and that the point of such powers is to ensure that consumers receive redress when they have been treated poorly. Rather than capping the amount energy companies can be forced to pay to consumers in compensation, consumers should be able to get back what they are rightly due. Although it may well be a relatively unusual occurrence and a slim possibility, there is a point of principle here that it is important that the Minster and the Government are able to defend.

Gregory Barker: I am grateful to hon. Members for tabling these amendments. Amendments 126 to 131 seek to amend schedule 14 to allow energy companies to face both retrospective and unlimited liability. That would not only create considerable regulatory uncertainty—it has been a consistent theme in this Committee that that is something all Members are at pains to avoid, mitigate and diminish—but would be likely to have a detrimental effect on the very consumers we are seeking to protect through consumer redress order powers. I know that that is not the intention of the amendments, and I very much understand where the hon. Gentleman is coming from, but we have considerable concerns about the amendments.
First, amendments 126 and 129 are designed to allow Ofgem, as the regulator, the power to require energy companies to pay compensation for regulatory breaches that occurred prior to the enactment of the Bill. I have some sympathy with the intention behind the amendments, as I can see that they are designed to ensure that consumers do not lose out when companies have broken the rules in the past. However, there is a bigger principle at play here, and I am troubled by the both the effect of setting such a precedent in the energy market and the consequential impact on all consumers.
The presumption in all legislation is that powers should not be applied retrospectively. That is for very sound reasons and goes way beyond the energy market. Whenever Parliament seeks to apply its law retrospectively, it invariably concerns a very, very serious issue on which Ministers could get into significant deep water. Those arguments particularly apply in this case, namely the likely effect of regulatory uncertainty on markets and the cost of capital, which in turn impacts on consumer bills. There are other unsettling consequences that would affect consumer bills.
In practical terms, such uncertainty would be manifested in many ways, including likely impact on: the cost of capital for market players, particularly smaller suppliers and new entrants that may be deterred; the cost of insurance premiums, not only to cover the extension of liability for past contraventions, but to take into account the possibility of further retrospective changes to the regulatory framework once the principle of retrospectivity has been conceded; the bills consumers face as energy supply companies pass on the direct costs that they face as a result of the changes; and the costs of network companies, which could also be caught by these provisions.
Over and above the very real unintended effects I have outlined, which would obviously not be in the forefront of the hon. Gentleman’s mind, allowing retrospective application of these powers would create financial and regulatory uncertainty for all energy companies, including small suppliers and the new entrants to the market that we are all seeking to encourage. This would happen at a time when we are trying to encourage the necessary investment required to get that transformational shift to a low-carbon economy. I fear that it would set a precedent, and we should seek to balance the risk of that against the likely benefit to individual consumers.
We should also be mindful that these important powers are intended to be used by the regulator only when it is unable to negotiate redress when assessing penalties. The potential for consumer benefit seems slight, while the regulatory risk and consequential effect on company and consumer costs seem likely to be great.
Amendments 127, 128, 130 and 131, too, have a potentially negative impact on market certainty and costs to consumers. Again, I have sympathy with the intention of the amendments—that compensation to consumers should not be capped by legislation—but consumers continue to be able to obtain redress through the courts under existing arrangements in the unlikely event that they suffer losses on a scale that exceeds the cap set in legislation. The processes and likely length of time that that may take are, of course, proportionate to the potential sums at stake. Similarly, when setting up a regulatory regime, powers and safeguards need to be proportionate and balanced, not only to enable consumers to get their due compensation rapidly, but to provide appeal mechanisms proportionate to the potential liability faced. That is reflected in the procedures in place for the existing penalties capped at 10%, and for the new redress orders set out in schedule 14. For example, our proposed appeal mechanism mirrors that in place for the penalty and is limited in scope and proportionate to the potential liability which is capped at 10%. If we provided for unlimited compensation, as set out in the amendments, we would be increasing the scale of liability without reflecting that change in the scope for appeal. We would therefore also need to look carefully at the arguments to provide more extensive merits-based appeals, which might result in lengthy legal cases and deny consumers timely compensation.
In addition, as with the amendments I discussed previously, we should be mindful of the unintended consequences of unlimited redress orders. A legal remedy already exists, and no penalty awarded by Ofgem to date has come anywhere near to the 10% cap that we propose. To be clear, 10% of annual turnover would mean penalties and compensation of nearly £1 billion for the largest domestic energy suppliers; the largest penalty imposed by Ofgem for any transgression to date has been £15 million—a tiny fraction of that £1 billion potential. While allowing unlimited redress orders is unlikely to benefit consumers, therefore, it would risk increase pricing in an increased cost of capital and or an increased cost of insurance premiums for energy companies. Those increased costs could then only be passed on to consumers. The impacts would not only be on the large, vertically integrated companies; an unlimited cap would disproportionately affect smaller energy suppliers and network operators, as their capital costs are proportionately higher. That might negatively affect the likelihood of new entrants coming into the market, which all in the Committee are keen to see and encourage. To clarify further, the combined 10% cap on penalties and redress in schedule 14 applies to each separate regulatory breach, so companies that commit multiple breaches face commensurately larger compensation payouts. Finally, for cases already under way—an important point made by the hon. Member for Rutherglen and Hamilton West—Ofgem will continue to negotiate compensation on behalf of the consumers affected. Companies that fail to negotiate and agree satisfactory redress can expect Ofgem to reflect that lack of co-operation in the level of the fine.
I hope that the hon. Gentleman is satisfied with my answers. I fully understand why he is so concerned and appreciate that he is putting the interests of consumers high on his agenda. For the reasons I have set out, however, I hope that the hon. Members will agree to withdraw their amendments.

Tom Greatrex: I listened carefully to what the Minister said and, in his response to amendments 127, 128, 130 and 131, on the 10%, he seems to want it both ways—things are unlikely because of what, first, 10% of turnover would be and, secondly, the highest level of redress has been. This amendment therefore should not really present difficulty, because it is only if the consumer detriment is above that level that this protects them. So it is not in that sense an unlimited liability.

Gregory Barker: But it would price in a risk. There would be a cost to that risk and that cost of capital or of insurance premium would be reflected in the costs to the company of their finance and insurance, however remote.

Tom Greatrex: But the Minister made the point that he thought that this was very unlikely. Therefore I would suggest that the cost of that risk would be relatively small in that case, if he says that it is relatively unlikely in the figures that he cited in terms of what 10% of turnover would be and what the highest level of redress currently has been.

Gregory Barker: I am not an expert in insurance, despite having some City background in finance. I pass on to him in good faith our best market intelligence that there would be a material impact on consumer bills if this unlimited cap had to be priced into the cost of finance, insurance and liability.

Tom Greatrex: In response to the other points that the Minister made in relation to the earlier set of amendments, amendments 126 and 129, I seek clarification of what I thought he said about the breaches currently under investigation. I read out a list and there are some significant ones. It suggests that some are taking quite a long time—some are getting on for two and a half years since investigation was started—particularly in relation to door-to-door selling. These could be significant in terms of the level of detriment to consumers. Did the Minister say that while in those cases Ofgem would continue to negotiate to reach a settlement, it would effectively bear in mind the level of redress that there would be in the future as, if not quite a benchmark, a comparison as to the level of compensation that would be or could be appropriate in those cases?

Gregory Barker: I think I am clear in saying that the overall cap does not change 10% of turnover, but Ofgem will bear in mind the willingness of companies to negotiate in good faith. If they are obstructive to seeing consumer redress, that will be reflected in a steeper fine for those found to be at fault.

Tom Greatrex: I thank the Minister for that response and his response to the other amendments. As he acknowledged, these amendments are designed to ensure that consumers who are ripped off are not then in a position where they are not compensated adequately. While I said at the outset that we welcome the consumer redress powers, there is a legitimate concern, given the number of investigations that are ongoing. However, given the Minister’s response, I am content to withdraw these amendments at this stage, although I reserve my right possibly to come back to some of these points on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 14 agreed to.

Clause 118  - Offshore transmission systems

Hugh Bayley: I invite the Minister to propose an intriguingly worded amendment.

John Hayes: I beg to move amendment 98, in clause118,page88,line36,leave out ‘by, or by’ and insert ‘by or on behalf of, or by or on behalf of’.
“Intrigue” is my middle name. I believe the amendment brings clarity and transparency in the area which requires it, as I shall explain by saying a word about the purpose of clause 118, which is to give confidence to offshore generators so that they can lawfully commission the transmission assets that they build back to shore.
The reason why I say the amendment adds clarity is that the clause creates an exception to the prohibition on participating in the transmission of electricity offshore without a licence during a commissioning period in certain circumstances, by amending section 4 of the Electricity Act 1989.
We have previously given developers the option to build their own transmission infrastructure, on the basis that they require it to get their power back to shore. That important flexibility allows offshore generators to progress in the manner best fitted to their circumstances. Clause 118 will enable developers to take that option to test and commission their transmission assets without risk of falling foul of the law. The fact that they could fall foul of the law is not our intention. In fact, it is the opposite of what we intend. However, it could occur. The clause will facilitate the timely acceptance of the assets by an offshore transmission owner, and allow the flow of renewable electricity during commissioning of the asset.
The amendment recognises that when developers make use of that flexibility to build their own transmission assets, it may be the developer or their associate who undertakes construction of the assets, or a contractor or subcontractor may do so on their behalf. The wording of the clause as currently drafted would arguably not cover assets built by a contractor or subcontractor and would thus fail to give many developers the legal confidence that the clause was originally designed to provide. In essence, the clause deals with an unintended consequence; one could call it a loophole in the existing legal and regulatory regime. The amendment identifies a possible further loophole in our plan to close the first. This minor, technical amendment will add greater clarity, certainly and transparency to the clause, principles which underpin the whole of the Bill.

Amendment 98 agreed to.

Clause 118, as amended, ordered to stand part of the Bill.

Clauses 119 and 120 ordered to stand part of the Bill.

Clause 121  - Interpretation of Act

Tom Greatrex: I beg to move amendment 72, in clause121,page92,line32,at end insert ‘and any successor authority’.
This is a simple amendment. Much as we have all enjoyed the past few weeks of detailed discussion in the Committee, I am sure we do not have any great desire to do it again too soon. Hypothetically, after an election and a change of Government, the incoming Government may wish to dispense with Ofgem. Were they to do that, the amendment would ensure that any successor authority to Ofgem continues to take forward the responsibilities described in the Bill. That is all the amendment seeks to do.

John Hayes: I am slightly surprised by the hon. Gentleman’s brevity. However, I am delighted because it allows us to make the progress we all seek. I found out a lot about the hon. Gentleman today. He revealed, in what he described as a confession, that he spends his leisure hours watching Liberal Democrat speeches on television.

Tom Greatrex: Only once.

John Hayes: That is beyond the call of duty for even the most diligent of shadow Ministers. It is certainly not something that I would have done. Today we also learned that he can make his argument with impressive brevity. I am not sure I can match that. I would not want to raise expectations and then thwart them. The debate about regulation is important; I will not make it a particularly long one. Amendment 72 would prepare the ground for a new energy regulator and is therefore essentially about Ofgem and its future. It would be unhelpful as it would create doubt and uncertainty in the sector and the market and therefore runs entirely contrary to the intentions of the Bill.
I do not say, and Government Members have never said, that the matters should not be looked at closely. We, indeed, at an early stage of our Government instituted a review of Ofgem, its role and responsibilities and its performance against purpose. The hon. Gentleman will be familiar with that review, which was conducted under the previous Secretary of State for Energy and Climate Change. It has an important role in shaping Ofgem’s renewed mission. That mission is in essence about ensuring that public interest lies at the heart of the delivery of energy policy. I have no doubt, having read the hon. Gentleman’s party’s thoughts on the subject—so I do have leisure habits I keep quiet—that they want much the same. They want a regulator fit for purpose that acts in the national interest and has at its heart defence of the public interest. I could hardly be expected to demur, given that I have been described in the national press as the people’s Minister. [Hon. Members: “ Who?”] Channel 4 described me as that but I do not want to dwell on it. Modesty forbids me to say more, although I am prepared to wear the badge that I have been offered.
Therefore, there is not much gap about the need for effective regulation. We have little doubt about the essence and purpose of it, and the Government have reviewed these matters because it is important to ensure that Ofgem is fit for purpose and doing what it was designed for. The Bill would also provide a range of additional powers to step in if necessary in all kinds of ways. We have talked at length about a more plural and liquid market that creates greater certainty by creating resilience through diversity. We have had extensive, exciting—enthralling even—debates on the subject in Committee. Given all that, I am not sure that the amendment is necessary. The Government have no plans to dissolve Ofgem, which we regard as an important part of the regulatory framework.
The review to which I have drawn the Committee’s attention took on board a wide range of views. We listened to the views of consumer groups, and we continue to do so. We identified, as a result of the review, a need for greater clarity between Ofgem and the Government through the establishment of a new statutory strategy and policy statement, about which we have already spoken. The statement is given life by the Bill, and it will set out the Government’s strategic policy goals for the gas and electricity markets and describe the role of the Department and Ofgem in ensuring that that strategy is not only fit for purpose but implemented effectively.
So this is about using the Bill to provide the means by which the regulatory framework matches the Government’s strategy and protects public interests accordingly.
I acknowledge, in the spirit I have adopted throughout our consideration, that there is room for greater clarity. As I have said repeatedly, there is room for greater consideration of the lines of accountability between the Department and Parliament. As we go through the cathartic process of radical reform, there is a need to measure the effect of that reform with diligence. And, indeed, it may be necessary for us to return to these matters as we do so. The hon. Member for Southampton, Test said, and I quickly captured his remarks and repeated them as though they were my own, that this is the beginning of a journey, not the end. The destination we seek is the more effective, better regulated market that I believe the Bill can produce.
I do not say that we have all the answers. What politician or Government Minister would say that? I do not for a moment believe that. The hon. Gentleman was kind in highlighting that approach.
How shall I put it? I am trying to think of a more elegant metaphor—or is it a simile?—than throwing the baby out with the bathwater. Any interventions on a more elegant turn of phrase would be welcome, but I see that no one can think of anything better, so throwing the baby out with the bathwater is probably not the right route, and it is certainly not the route that we are choosing to take. I say this with charity and a degree of paternal concern, but, on reflection, I think the Opposition will realise that this policy is not the best in their portfolio. On reflection, other parts of their critique of the Bill, particularly on the more plural and liquid market and on clarity and accountability, are more persuasive.
On that note and in that spirit, paternal but never patronising, we should move swiftly on. I note from the brevity of the hon. Member for Rutherglen and Hamilton West that he thinks so, too. I invite him to withdraw his amendment.

Tom Greatrex: I made a number of confessions this morning, which is good for the soul, and I will confess again that my brevity may have been influenced by my anticipation of the Minister’s seeking to quote various things at me this afternoon.
The amendment is designed purely to account for a particular set of circumstances. The Minister said that the amendment would create uncertainty, but I think it would do the opposite, because it states that the responsibilities that the Bill assigns to Ofgem may be transferred to a new regulator. That is a bit more certain than the uncertainty he suggested.

John Hayes: The amendment would create certainty if we knew what the Opposition were going to put in Ofgem’s place. If the Opposition had come with a well worked-up plan for what an alternative regulator might look like and the ways in which it would differ from Ofgem, certainty might have been the result. Given that that is not the case, and given that the Government have already shown both a determination to review Ofgem and a willingness to do so further should that become necessary, I think we stand on the side of certainty, and the hon. Gentleman stands on the side of doubt.

Tom Greatrex: I advise the Minister not to get too far ahead of himself, because on Report there may be opportunities to discuss some of these things a little further. The amendment would insert a safeguard into the Bill were a new regulator to happen. I have not been convinced by his elegant and extended contribution that that should not be the case. Therefore, I do not intend to withdraw the amendment.

Question put, That the amendment be made.

The Committee divided: Ayes 9, Noes 11.

Question accordingly negatived.

Clause 121 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Joseph Johnson.)

Adjourned till Thursday 7 February at half-past Eleven o’clock.